Citation URL: http://www.urban.org/BrettTheodos

The United States Small Business Administration (SBA) was created in 1953 to help Americans start and build small businesses. Recently, the SBA commissioned the Urban Institute to look at four of the agency's loan and investment programs to assess their past performance and consider how the agency can set benchmarks for future performance management. The studies addressed three key research questions of particular interest to SBA and its constituents: 1) Does SBA assistance help the firms that receive it? 2) To what extent does SBA assistance serve its market? 3) Do SBA programs duplicate or overlap with other public sector programs?

This report synthesizes the findings, conclusions, and policy recommendations derived from six reports generated by our evaluation of SBA's 7(a) Loan Guaranty, CDC 504 Loan, MicroLoan, and SBIC programs. The various studies were conducted to address three key research questions of particular interest to SBA and its constituents: 1) Does SBA assistance help the firms that receive it? 2) To what extent does SBA assistance serve its market? 3) Do SBA programs duplicate or overlap with other public sector programs?

This study analyzes the extent to which the SBA's 7(a) and 504 programs serve borrowers facing capital gaps. Comparative and market share analyses show that women-, minority-owned, and start-up firms accounted for a higher share of the loans and larger share of lending volume under the 7(a) and 504 Programs compared to such firms' share of conventional small business loans. 7(a) and 504 loans went to firms that, on average, had lower sales and fewer employees than firms that received conventional small business loans. These differences suggest that SBA’s 7(a) and 504 Programs served borrowers who face a capital gap.

SBA programs are required to serve only borrowers unable to secure loans from another source. This report examines whether lenders comply with the credit elsewhere requirement, based on interviews with 23 commercial bank lenders that originate both SBA and conventional small business loans. Overall, lenders: are aware of the credit elsewhere requirement, say that SBA programs allow them to serve borrowers who do not meet standard conventional underwriting guidelines, indicate there is little overlap between SBA and conventional lending. SBA loans are offered with longer terms than conventional loans allowing borrowers, who commonly lack sufficient NOI, to meet DSCR requirements.

The SBIC program provides venture capital and mezzanine finance to start-up and expanding small businesses through SBICs, and is intended to fill the gap in smaller debt/equity financings, and to expand the reach of venture capital into underserved urban and rural markets. We find that debenture SBIC investments varied substantially from comparable private venture capital. Total financings by SBICs are much less likely to be in high-tech industries than those made by venture capital firms, are more dispersed regionally, and appear more likely to be in low- and moderate-income areas.

Spatial factors and location are often missed, but critical, pieces of the puzzle in developing public and private policies that support working families. This paper summarizes factors determining locational decisions of businesses and workers, as well as local economic growth, and suggests how employer needs as well as opportunities for low income workers might be served by successful policies in the areas of housing, transportation, education and workforce development. There are notable differences in the patterns of work and employment within and across metro areas, implying that there is no single strategy or national blueprint that will work everywhere.

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